The secret 'in' that might get you that refinance...

For anyone who has gone to refinance recently, you may have been stopped in your tracks when you heard the exact interest rate at which many banks are assessing home loans right now.

Australian Banks are required to assess how much you can borrow with a buffer on top of the interest rate for which you are applying. In recent years, this 'assessment rate' sat around 5.5% - 6% when interest rates were in the mid 3% - 4% range.

However as home loan interest rates now sit at the 6% mark, the buffer at which many banks are now required to assess your home loan is sitting between 8% - 9%.

An 8% - 9% interest rate? What does that mean?

In a nutshell, people can borrow significantly less than what they could 12 - 18 months ago.

If you think about it, if a bank is assessing you as if your interest rate was 9%, this means that your ability to borrow will reduce.

Ouch.

For some home loan customers were their capacity to borrow isn't an issue, this high assessment rate hasn't affected them and them as they seek a better rate when refinancing.

However, for others, it has put them in a difficult situation when they have tried to refinance out of a high interest rate with their current bank. The media has termed such home loan customers 'mortgage prisoners'. It means that for these home loan customers, who currently can afford to repay their loans and have no other 'impediment' to get in the way of a refinance, cannot do so because their home loan applications are falling over when assessed at a 9% interest rate.

What to do?

What is not widely known is that in response to this predicament, several banks have stepped outside the box to help such home loan customers to be able to refinance. Appreciating that home loan customers should not be held in a home loan product where they may be significantly disadvantaged by an excessively high interest rate, these banks are allowing such home loan customers to refinance with only a 1% buffer.

This makes a significant difference to the capacity for affected home loan customers to refinance and escape having their home loans assessed at 9% when instead they may be assessed at 7%. - 7.5%. It's getting these home loan customers over the line with a better interest rate with other banks.

Only a small number of banks are offering this lower refinance buffer and there are certain criteria that you must meet. However if you are one of those affected people who find themselves tied to their current bank unwillingly, find out if you can take advantage of these refinance offers to help you get into a lower interest rate loan.

It could just be the thing that makes all the difference.